Struggling to pay your tax bill? You are not alone. The IRS payment plans ease this burden on taxpayers. However, not everyone qualifies for these plans. The first step is to understand if you are eligible for an IRS installment agreement, and then choose the right plan for your financial situation.
Here is a clear guide to help you understand the basics, including the minimum monthly payment requirements.
Key Takeaways
- The IRS minimum monthly payment is typically your total tax debt divided by 72 unless you specify a different amount.
- Short-term and long-term payment plans are available, depending on your debt amount and eligibility.
- Setting up a direct debit payment plan online is the most cost-effective option.
- IRS interest rates on unpaid balances adjust quarterly and can increase total repayment amounts.
What Happens If You Do Not Pay Your Taxes On Time?
The IRS will apply interest and a monthly late payment penalty for your unpaid taxes by the final payment date. Besides, there is also a penalty for failure to file a tax return. Even if you cannot pay your balance in full, at least you should file timely.
What is the IRS Installment Plan?
An IRS installment plan is an agreement to pay tax debts over a certain period. You need to close your debt within this period. These plans make tax payments more affordable for taxpayers. If you stop paying your plan payment during this period, you may still face a tax lien, garnishments, or other actions.
An installment agreement may be viable if your assets or income don’t qualify for an Offer in Compromise or Currently Not Collectible status.
Does an IRS Installment Plan Stop the Garnishment?
If you are eligible, an installment agreement is one of the ways to stop garnishment. After requesting a payment plan, first, it will be under review. During this period, the IRS cannot levy your assets or income, and the time to collect is suspended or prolonged. However, if it is rejected, the collection period is suspended for 30 days. Still, you have the right to appeal an installment agreement rejection or termination. With this right, the collection period is suspended while waiting for a decision on an appeal until the final decision.
How to Understand Whether You Are Eligible for an IRS Payment Agreement
For smaller debts, the IRS may not require an explanation of your financial situation. However, depending on the amount owed, the IRS will ask for detailed answers and documents. You must also meet certain criteria to start negotiations, such as not being in bankruptcy proceedings, having filed all required tax returns, and not having a previous installment agreement.
The IRS offers both long-term and short-term payment options, depending on your debt amount and repayment timeline.
Individuals:
Short-term payment plan: If you owe less than $100,000 in combined tax penalties and interest, you can pay your tax debt in 90 or 180 days.
Long-term payment plan: If you owe $50,000 or less in combined tax, penalties, and interest, have filed all your tax returns, and can pay your tax debt over 180 days.
Businesses:
Long-term payment plan: If your business owes $25,000 or less in combined tax, penalties, and interest, and you have filed all required returns, you can set up a long-term payment plan. If you owe more than $25,000, you may need to arrange direct debit payments to qualify.
Applying for an IRS Payment Plan
If you are eligible for a short-term or long-term payment plan, you can apply for an IRS payment plan online via the Online Payment Agreement tool.
However, if you do not qualify or cannot apply online, you may still be able to pay in installments. Individuals should fill out Form 9465 or call the IRS. For more details, check the official website.
Remember: Providing an IRS payment plan agreement does not relieve you of paying interest and penalties. You must still pay them until your balance is closed. The main goal of a payment plan is to collect tax debt periodically.
You can talk to our tax attorneys right now to see if you are eligible for an IRS payment plan and to create the best payment plan for your financial situation.
Feeling Overwhelmed?
What is the Minimum Payment IRS Will Accept?
If you want to apply for a long-term payment, the monthly minimum payment plan will vary according to the amount of debt.
The IRS will ask how much you can pay per month. In general, you can choose how much you pay every month. If you leave that decision to the IRS, the minimum monthly payment is your total debt divided by 72 months (6 years) unless you specify a higher amount.
Example: If you owe $36,000, the minimum monthly payment is $500 ($36,000 ÷ 72 months).
Fees for IRS Installment Plans:
The cost of an IRS payment plan varies based on the application method and eligibility for a fee reduction. Please check here to see all the fees. You do not have to pay anything to set up a short-term payment plan. Fees may be lower for lower-income taxpayers.
Short-term payment plan setup fee
- Apply online, by phone, by mail, or in person. The fee is $0.
Long-term payment plan setup fee
If you pay through direct debit:
- Apply online. The fee is $31.
- Apply by phone, by mail, or in person. The fee is $107.
If you pay through direct pay, EFTPS, or else:
- Apply online. The fee is $130.
- Apply by phone, mail or in person. The fee is $225.
- For low-income taxpayers. The fee is $43.
How the IRS Calculates Interest and Penalties
Interest rates are based on the federal short-term rate + 3% and are compounded daily. The IRS also charges a failure-to-pay penalty of 0.5% per month, which may increase to 1% per month if a payment plan defaults. Paying off your debt sooner reduces these costs.
| Charge Type | Rate | Details |
|---|---|---|
| Interest on Unpaid Taxes | Federal short-term rate + 3% | Compounded daily; rate updated quarterly. |
| Late Payment Penalty | 0.5% per month | Increases to 1% per month if a payment plan defaults. |
| Late Filing Penalty | 5% per month (max 25% total) | Applies if you fail to file your tax return on time. |
| Early Payment Savings | No penalties | Paying early reduces interest and penalties, saving money. |
Types of IRS Installment Agreements
If your tax debt is less than $10,000 (not including penalties and interest), guaranteed installment agreements can suit you. Your installment plan will most probably be automatically approved if you meet the criteria. You must commit to paying off your debt within three years. Your total balance is divided by 36 months to subtract the minimum monthly payment. Besides, the IRS will not place a lien if you have a guaranteed installment agreement.
If your tax debt is less than $100,000 (including penalties and interest), streamlined installment agreements can be suitable for you. You have 72 months (6 years) to pay your tax debt. However, it can also offer 84-month terms. The minimum monthly amount you will pay is also found by dividing your total debt by 72. Besides, the IRS will not place a lien if you have a streamlined installment agreement. For debts over $50,000, however, you must arrange direct debit payments or a payroll deduction to avoid a lien.
If you owe more than $100,000 or $50,000 (but choose not to pay by direct debit or payroll deduction), non-streamlined installment agreements can be suitable for you. However, this agreement cannot be automatically approved. Plus, the IRS may put a lien to protect its claim.
If you cannot pay your debt within the periods specified in other agreements, partial payment installment agreements can be suitable for you. You must negotiate this agreement with the IRS. Under this agreement, the IRS may put a lien and reevaluate your case every two years.
How Much Is Interest on IRS Payment Plans?
When you have a payable balance, the IRS charges interest on your account. Even if you set up a payment plan with the IRS, this interest will continue until your balance is closed. Besides, the IRS adjusts the rate quarterly based on the federal funds rate in the first month of the previous quarter. If you feel a bit confused, it is normal.
New IRS Policies for 2025
1. Higher Standard Deductions
The IRS has increased the standard deduction for 2025 to adjust for inflation. Single filers and married individuals filing separately can now claim $15,000 (up from $14,600), married couples filing jointly can claim $30,000 (up from $29,200), and heads of household can claim $22,500 (up from $21,900). These changes may impact eligibility for payment plans and installment agreements based on adjusted taxable income.
2. Updated Tax Brackets
Income thresholds for tax brackets have been adjusted to reflect inflation. The top tax rate of 37% applies to incomes over $626,350 for individuals and $751,600 for married couples filing jointly. These updates can affect eligibility for IRS payment plans by influencing total taxable income.
3. Retirement Contribution Limits
For 2025, the 401(k) contribution limit increases to $23,500, while IRA contributions remain capped at $7,000. Older workers (ages 60–63) can make additional catch-up contributions of $11,250 to 401(k) plans. While not directly related to payment plans, this policy could impact overall financial planning for taxpayers negotiating installment agreements.
4. Flexible Spending Accounts (FSAs)
Healthcare FSA contribution limits increase to $3,300. This could help taxpayers budget better by allocating more pre-tax funds for medical expenses, potentially freeing up resources to make IRS payment plan installments.
5. Expanded Earned Income Tax Credit (EITC)
The maximum EITC amount for 2025 is $8,046 for taxpayers with three or more qualifying children. This increase can provide additional funds for low-income taxpayers, making it easier for them to meet IRS payment obligations.
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Frequently Asked Questions
Yes, you can set up a payment plan with the IRS to pay your tax debt over time. You should contact the IRS in no time, or call us to prepare your documents before sending them to the IRS.
The time you have to pay depends on your situation, but generally ranges from 30 to 120 days for short-term payment plans or up to 6 years for long-term plans.
For phone assistance with IRS payment plans, call 1-800-829-1040.
Go to the IRS official website, choose your plan type, and provide the required information. But it is not that easy because tax law rules can be complicated for taxpayers. If you need help for clarification, contact us.
The IRS charges interest at the federal short-term rate plus 3%, compounded daily, and updates the rate quarterly.
Yes. Businesses owing more than $25,000 may need to set up direct debit payments or payroll deductions.
Yes, you can increase or decrease payments by submitting updated financial details to the IRS.
Yes, the IRS sends notices with deadlines to fix missed payments or provide updated information.
No, paying early saves on interest and penalties.
Yes, you may qualify for the Fresh Start Initiative or penalty abatement while on a plan.
Submit Form 433-A or 433-F to request a lower payment based on financial hardship.
Yes, the statute pauses while the plan is active or under review and resumes once completed or canceled.
No, unless you default on payments.
No, but unpaid tax liens can impact loan approvals, even though they’re no longer on credit reports.
It makes installment agreements easier to qualify for and reduces setup fees for low-income taxpayers.
Pay on time, confirm details, and keep records to avoid errors or penalties.
Usually, your debt is divided by 72 months, but it depends on your financial situation.
You can revise and resubmit your request or seek help from a tax professional.
Yes, through an Offer in Compromise, if you can prove financial hardship or inability to pay in full.
